5 Steps to Build a Business Succession Plan

Regardless of the size of your operation or the age of the owners, any farming enterprise needs a transition plan. That’s according to Shannon Ferrell, a professor in the department of agricultural economics at Oklahoma State University.

In the Bovinews webinar “Best Practices for Succession Planning”, Ferrell goes through a five step process producers can go through to build a business transition plan.

Step 1: Know where you’re starting from.

Establish where your operation is now as a business and what your short and long term goals are. This process takes a deep dive—the deepest dive you’ve ever taken, Ferrell says—to understand every facet of your business. This includes establishing the tital to your property, title to equipment, vehicles, stores of commodities, financial assets, and so forth. “You need to do the best job you ever have of rounding up every piece of property you have, how it’s owned, what its current value is, what the tax basis is and what you think you could get out of in on the fair market,” Ferrell says.

Step 2: Communicate with your stakeholders.

“Talk to the people who have a financial investment in your farm,” Ferrell says. “And don’t forget to talk to the people who have an emotional investment in your farm.” Have a family meeting and be very clear that open, honest communication is expected. It’s vital to understand everyone’s vision for the future of the farm and each person’s role in the operation. You might uncover things that don’t have anything to do with the farm, Ferrell says, but everything to do with family relationships.

Step 3: Have a business succession plan.

Know how you are going to move ownership and control and understand how revenues will be shared today and in the future. While this can be complex, Ferrell says if you are proactive about this step the process will be easier. And when transitioning to the next generation, in addition to teaching how things are done, explain the why. Translate your experience, Ferrell advises.

Step 4: Have an estate plan.

Have tools in place to move the title to your property from one generation to the next after someone passes away. If a transition plan is in place, it’s likely these details will already be established. Ferrell says 64% of farmers don’t have any estate tools in place, even though millions of dollars of assets can be involved.

Step 5: Repeat and update.

This process is a cycle, so the plan will take revision, reevaluation and reimplementation on a regular basis. “There are lots of milestones and triggers that need to have you go back and review your plan periodically,” Ferrell says. “Whenever somebody is born or dies, whenever someone gets married or divorced, if you have a major acquisition or sale of an asset. Just be sure to go back and review your plan when these things happen.”

Ferrell also highly advises to seek professional advice when going through the transition planning process. It’s a lot easier for someone with an outside perspective to take a look at things objectively without emotional connections and provide straightforward questions and answers.